Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
PNM Resources in Focus
PNM Resources (PNM - Free Report) is headquartered in Albuquerque, and is in the Utilities sector. The stock has seen a price change of 14.63% since the start of the year. The power company is currently shelling out a dividend of $0.29 per share, with a dividend yield of 2.46%. This compares to the Utility - Electric Power industry's yield of 3% and the S&P 500's yield of 1.87%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.16 is up 9.4% from last year. PNM Resources has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 9.66%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. PNM Resources's current payout ratio is 53%, meaning it paid out 53% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for PNM for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.15 per share, with earnings expected to increase 7.50% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that PNM is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).